The development of definitive endoderm and its subsequent specification leads to the formation of many of the major organs including the liver, pancreas, lungs, thyroid, and intestines. Under appropriate culture conditions, mouse embryonic stem (ES) cells differentiate into embryoid bodies (EBs) that contain derivatives of all three germ layers. Most of these studies have focused on the development of mesoderm and ectoderm derivatives. The development of hematopoietic, vascular, muscle and neuronal lineages were found to parallel that in the early embryo, thus validating the ES system for early developmental studies. More recently, studies have provided evidence for endoderm development in ES differentiation cultures and demonstrated the generation of insulin expressing cells and cells with hepatocyte characteristics. ES studies have not yet established conditions for the efficient induction of endoderm or its specification to liver. This proposal addresses these issues by investigating specific steps of development including (1) induction of ES cells to an endoderm fate, (2) specification of endoderm into a hepatocyte progenitor, called the hepatoblast and (3) maturation of the hepatoblast into a functional hepatocyte. Thus, the liver is the focus in this application as an endoderm-derived tissue. Early endoderm fated cells as well as the hepatoblast will be characterized from ES cell cultures using cell sorting analysis. The liver repopulation potential of endoderm-derived cells will be analyzed in two mouse models of liver failure. The project will also seek to translate the murine ES cell differentiation program to optimize the generation of human hepatocytes. Therefore, the ultimate goal of these studies is to develop a feasible approach to generate functional hepatocytes from ES ells and to understand the mechanisms that orchestrate the hepatocyte development from ES cells.